Litigation funder Burford Capital has said that another big rise in profits shows that its model of investing in a “large portfolio of widely diversified and well-diligenced” cases works.
Burford reported that income from its litigation funding business for the first six months of this year was up 64% on this time last year to over £19m, driving a 56% increase in the group’s operating profits to nearly £18m.
In its half year report to shareholders, the group said the results “demonstrated its ability to invest capital wisely and profitably” in the legal sector.
“One year of good results could be a fortunate accident. Two years could be an extra dose of luck. But 2014 was our third year in a row with income over $50m, a trend that we have continued into 2015.
“It is not, we believe, a coincidence that Burford stock has risen about 40% since the end of 2014.”
Burford said the first half of the year saw its “largest recovery to date” from litigation funding – £39m in gross proceeds on an investment of £16m, leaving a profit of £23m. The report described this as “one of Burford’s many portfolio arrangements”.
The litigation funder went on: “The first half of 2015 was characterised by diversity – by size of client, by geography and by transaction type and structure.
“We closed large transactions to finance some of the world’s most complex litigation, and very small transactions to provide access to justice for struggling English businesses using our special small case product in the UK market.”
Known as ‘Sprint’, Burford launched a funding scheme in February this year for cases valued at between £25,000 and £500,000, marketed and administered by broker TheJudge.
Burford said in the report that it believed more competition would be good for the litigation funding market, with “multiple players” increasing demand by “educating clients and lawyers about the possibilities” of litigation finance.
“We do not, however, endorse the participation of capital providers with opaque structures or uncertain or undisclosed capital sources. Potential users of litigation finance need to do diligence, just as in any other area.”
As an example, Burford cited litigation finance providers “using the value of the claims they are invested in”, rather than the value of their own investments, as a “metric of its own size”.
The funder compared this to an equity manager “touting” the total size of all the companies in which they were invested, rather than their own assets.
Burford added that if it participated “in that game”, it would “dwarf our competitors”, with a claim value for its portfolio of “many billions of dollars”.